Is it standard practice for searchers to sign an LOI and then go look for the money?

May 23, 2025

by an intermediary in Oshkosh, WI, USA

I plan on selling my promotional products ecommerce business in the near future and have been reading a number of the posts on Searcher. It seems that a number of people don't have the money lined up before they sign an LOI. If this is the case, wonder how often a deal falls through because the funds can't be raised. And as a seller, how can I be sure there is money behind the LOI and it's not a waste of time?

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Reply by an intermediary
from The University of Michigan in Bonita Springs, FL, USA

All too often. Sellers and their brokers do not want to tie up a deal while a buyer is searching for funds -- especially now when there are so many well-funded buyers in the market. My advice for sellers and brokers is to ALWAYS demand proof of funds prior to engaging a buyer. Time is the one commodity we can never replace. Never waste it with an unprepared buyer. And Searchfunders, understand for most sellers, this is a transaction many sellers have been waiting for their entire careers. It is their retirement plan, a major life-changing event, etc. and by holding up a deal while you desperately attempt to fund the deal is unfair. Trust and respect are such a huge part of executing a deal. Be honest with your funding plan with the seller and/or broker up front so they can make an informed decision. If they like and trust you, they may be willing to wait for you.

Reply by an intermediary
from Syracuse University in Leominster, MA, USA

This does happen. As a broker, when I first talk to a buyer, one of the things we discuss is their financing plan for the business purchase. I want to know that they have a plan to raise the money, I want to know who they plan to approach if they need to raise the money, and I want to know that they have at least 5% of the price in their own bank account / relatives/ friends committed already. If the seller and I are not comfortable with the story, their LOI might get put on the shelf - or we might accept but not take the business off of the market while they try to raise the money. In the LOI there will be a deadline (usually###-###-#### days) to raise the financing or get a bank commitment letter. I also want some escrow money with the offer and more when the APA is signed. I can't always get it if it is a PE deal, but that depends on who they are.

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